November 10, 2006

Lehman Proposes A ‘Welfare Planet’

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In his first appearance at Cornell since President David J. Skorton’s September inauguration, former President Jeffrey S. Lehman ’77 lectured on welfare and globalization yesterday as part of the Cornell Institute for Public Affairs’ colloquium series. Lehman, who will present another lecture today, was the University’s 11th president, serving from July 2003 to July 2005.

Lehman spoke on the challenges posed to the welfare state by globalization and suggested that one solution to both issues would be the broadening of the welfare state into a “welfare planet.”

Malott Hall’s Bache Auditorium was full for the former president’s discussion, as attendees included graduate students enrolled in GOVT 699, the colloquium.

Lehman, who has been traveling the world on various global initiatives, said he was severely jetlagged and relied heavily on notes and Dasani bottled water.

Lehman said that because of the phenomenon of globalization, the way policymakers study the welfare state needs to evolve.

“Nation states are not the big, big deal — the big, big deal is the planet,” he said. “Nation states are artificial constructs. … Through globalization we have created an interdependent global economy … that’s fast on its way to including virtually every person on the planet.”

Lehman suggested that globalization is a cause of the scaling back of the welfare state or the limitation of its further expansion that many countries are now experiencing. In a globalized economy, Lehman explained, capital moves to where it can find the highest returns — in non-welfare-state countries where labor and infrastructure are cheap and taxes are relatively low.

“The good company can go bankrupt trying to compete with the low price cellar and the low cost of production in the other countries,” he said.
This forces countries to engage in a tax competition, Lehman said.

“They would do anything possible to lower the amount of taxes companies would have to pay directly or indirectly, especially on labor,” he added. This, he explained, creates a so-called “race to the bottom.”
“I don’t think that the European welfare states in their most generous forms are sustainable in a globalized economy,” Lehman said.

He offered a solution: “What if we were to move from a welfare state to a welfare planet? … The World Trade Organization could make social welfare rights a predicate for increased trade liberalization.”

Lehman explained that standards of welfare — whether in the form of social programs, pension funds, or education — would not be expected to be the same in every country but rather that in each country a certain amount of the gross domestic product — say, 25 percent — would have to go into social welfare programs. That way foreign companies would not be able to siphon money out of countries without some of the money going back to helping the people. Also, with a universal standard, the total cost of operating would not vary greatly from country to country. In other words, companies would not be as motivated to move to countries like China in search of cheap labor and low taxes.

Prof. Ted Lowi, government, chipped in after the talk.

“The only way you can [create a global welfare state] is to raise the price of going to the recipient countries. Otherwise the free flow of capital is … colonialism. Globalization is a code word for colonialism if you don’t watch out,” Lowi said, explaining he meant colonialism in the sense that countries are driven to cut services to their own citizens in order to attract transnational corporations.

Lehman described welfare state programs as “three rings radiating out from a core.” The inner ring represents income transfer programs, like those addressing food, healthcare, childcare and social insurance issues. The middle ring, Lehman said, is public education, which he described as a human capital investment. The third and last ring encompasses regulatory programs, especially regulations that enhance the worker-employer relationship and impact things like hours, wages, and the right to organize and collectively bargain with an employer.

Running through a brief history of welfare, Lehman said that the inner ring programs can be traced back to the English Poor Law of 1601, which required parishes to give work to the able-bodied poor and relief to what was then termed the impotent poor.

During the 20th century, Lehman said, the industrialized nations moved towards the welfare state, aided by the Great Depression’s reinforcing messages that markets fail and, Lehman said, “that life is not fair.”
He added that one of the reasons for addressing market failure is the problem of what he called “inhumane markets.”

“Markets compensate people for producing something that others are interested in buying,” he said. As technologies change, skills are made obsolete.

“There is not a lot of demand today for typewriter repair mechanics,” Lehman said.

In liberal democracies like the United States, most welfare programs are means-tested, while in the so-called social democracies, including European countries like Sweden, many programs are universal.

Lehman is currently working on projects designing a new campus for a Bangladeshi university and studying a system to support the rule of law in China. Lehman lives in New York City where his wife, Kathy A. Okun, has accepted a position as a high-level official in Columbia University’s development office. He said he has not recently spoken to Skorton.